CHINA BANKING AND FINANCE NEWSLETTER
Vol. 3, No.10 - November 4, 2002
TOPICS THIS ISSUE:
- China's bad-debt disposal speeds up
- Shanghai sets up capital clearing center for banks
- Chinese steel giant engages in fund management
- Richest head for infrastructure
- Insurance law opens up
China's bad-debt disposal speeds up
China's asset management companies (AMCs) will accelerate the pace of disposal of 1.4 trillion Yuan (US$169 billion) in non-performing loans (NPLs) transferred to them from State-owned banks.
Wang Haijun, executive director of the Investment Banking Department of the China Cinda Asset Management Corporation ("Cinda") stated "we must take quick action to dispose of the assets before it is too late". China Cinda is one of the four AMCs established in 1999 in China to take over and dispose of the Big Four banks' NPLs.
Wang reference related to those assets that may devalue quickly if not disposed of in time, including early-constructed real estate and assets that are less marketable if held for too long.
Foreign banks are also able to participate in the program on an equal basis with domestic investors. According to Mr. Wang, several foreign banks have already submitted their proposals.
To dispose of the NPLs, the AMCs conducted a series of debt-to-equity swaps with 580 State-owned enterprises (SOEs) during 1999 and 2000. The swaps transformed 40 billion Yuan (US$4.8 billion) of bad debt into equity held by the AMCs in these enterprises.
In addition, through public auction, selling and negotiation, another 232.3 billion Yuan (US$28 billion) worth of such NPLs were disposed of by the end of September, which helped the AMCs recover 52.5 billion yuan (US$6.3 billion) in cash.
Several AMCs, including Cinda, have applied to the central bank to be allowed to "package" the better quality assets to facilitate financing and securing financing against such assets.
Mr. Wang further indicated that if enterprises have good cash flow, some of the indebted assets could be pledged to be issued as bonds, like in the transportation, water and power industries. Such financing structure would help the indebted enterprises obtain more capital and relieve pressure on the banks and AMCs.
Financial experts in China are of the opinion that the most important priority at this time is to prevent new NPLs in the State-owned banks.
The Big Four banks - Bank of China, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China - though their networks are much bigger, are weaker in management, growth and profitability than listed banks.
Source: China Daily
Shanghai sets up capital clearing center for banks
A capital-clearing centre for city commercial banks around China has been launched in Shanghai after a six-year trial, a move aimed at fending off competition following China's entry into the World Trade Organization.
A total of 96 city commercial banks out of the 111 banks in China have joined the centre, which provides them with a nationwide capital clearing network and platform, making remittance faster and more convenient.
The city commercial banks sprang from the urban credit co-operatives in the late 1980s, which were transformed into city co-operative banks in the mid 1990s, and later known as city commercial banks.
With a focus on small and medium-sized businesses, the most dynamic part of China's economy, they have become a most vigorous element in the China's financial system.
Most of the city commercial banks are confined to conducting business in their regional domain, which means their clients are unable to conduct capital clearing at bank branches in different cities. This has been an obstacle for their development.
Due to the lack of a nationwide network, many of city commercial bank clients have transferred to large State-owned banks or share-holding banks.
To address the issue, 24 city commercial banks, led by the Bank of Shanghai, formed an alliance to carry out a trial run of a nationwide capital-clearing centre. By the end of September, 70 banks had joined the network, with a total clearing capital amounting to 202.8 billion Yuan (US$24.43 billion).
Experts say the centre will facilitate the development of city commercial banks.
Approved by China's central bank, the People's Bank of China, the non-profit making institution will provide a platform for collaboration among those banks, assisting them to enlarge the scope of their business and explore a larger market area.
By using the capital-clearing centre, banks can share their resources of technology, billing systems, bankcards and fund management, all of which will improve efficiency.
The centre will link up with its member banks' payment system, to take advantage of their national network, said Fu Jianhua, president of the Bank of Shanghai.
Source: China Daily
Chinese steel giant engages in fund management
The Shanghai Baogang (Group) Company, one of China's leading steel producers, has made a further step forward in diversifying its businesses.
The Huabao Fortune Trust Company, a subsidiary of the Baogang company, and the world-renowned Societe Generale Asset Management Company of France, have launched a joint venture, the Huabao-Societe Generale Fund Management Company, which will engage in fund management and businesses permitted by China Securities Regulatory Commission (CSRC).
The CSRC has given approval for the establishment of the joint venture, one of the first Sino-foreign joint ventures engaged in fund management in China.
The new firm will be registered in Shanghai, with 67 percent of its shares held by the Chinese company and 33 percent by the French company.
Huabao Fortune Trust Company boasts assets worth 6.498 billion yuan (780 million US dollars).
The Societe Generale Asset Management, a subsidiary of French bank Societe Generale, managed 1,500 investment funds with total assets of over 272 billion Euros as of March.
Source: Xinhuanet
Richest head for infrastructure
Rong Zhijian is number one on the Forbes list of China's Richest in 2002. Mr. Rong's wealth is estimated at US $850 million. The bottom of the list has been upgraded to US$ 84 million this year, a 50 percent growth compared to 2001 when the wealth of the lowest entrepreneur on the list was estimated at US$50 million.
Mr. Rong owns almost 19% percent of Hong Kong-based Citic Pacific Group, which deals in infrastructure projects, such as tunnels and bridges in Shanghai and Hong Kong. Fifty percent of the private business people on this years list, made their fortune in real estate and infrastructure. "China is building and the list is reflecting that," says Rupert Hoogewerf who made the list for Forbes. "It is one of the significant changes from last year, when agriculture was dominating the list, because it was the first sector to open up in China's economic reform."
29 people remain from the 2000 top 50 and a mere eight from the 1999 top 50, says Forbes. In the total of 100, there are 34 new names, led by Shanghai real estate developer Eddie Ye Lipei, who enters sixth place. A position he has to share with Liu Yonghao, last year's number one.
The number of women on the list is decreasing from seven last year to three this year. But most businesses are family businesses, where the women still play an important role according to Forbes.
A lot of media interest focused on recent tax investigations, such as the one into the wealth of last years' number 2 Yang Bin, who is now under house arrest. He is no longer on the list because at this stage it was very hard to assess his assets.
Source: China Biz
Insurance law opens up
China's top legislative body, the Standing Committee of the NPC, decided to open up the insurance market by extending the legal possibilities for investment. So far insurers investment opportunities were severely restricted. Allowed were deposits, mutual funds and treasury bonds. But the market faces two challenges, the low interest rate on bank deposits and State Treasury bonds being the first.
"Insurance companies cannot make money only through buying State bonds; this won't let them make ends meet. Therefore, insurance companies should find other ways to ensure the safety of their funds," said Li Yining and Liu Suinian, both NPC Standing Committee Members, in China Daily of October 29.
More freedom is also given in areas such as business-line extensions and new products, and property insurance firms are allowed under the new law to offer health care and casualty products, that were until now reserved for life insurers. Until now all insurers were required by law to reinsure their policies through China Re. Since this is against WTO-rule, the restriction will be lifted.
The entry of foreign insurance companies will be a challenge for domestic insurers. A number of foreign insurance companies have already accessed the Chinese market, American International Group ("AIG") being the first in 1992. Approval, however, is given to others on a case-by-case basis in some major cities. Domestic insurers have been rather successful in the past decade in containing the influence of AIG by recapturing a large part of the market share.
The law amendments that have been proposed by the NPC, and will be enacted in January, will give the insurance business more freedom. However, companies are still not allowed to use their funds to establish enterprises that have nothing to do with the insurance business.
Source: China Biz
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